Natuzzi Reports Net Sales Decrease

Furniture World Magazine

- Annual unit sales slightly increased by 0.4% - Earnings per share decreased 50.7% to EUR 0.34 in 2004 - Full year 2004 cash flow from operations increased by 92.6 percent to EUR 75.3 million - Annual dividend of EUR 0.07 per ADR or Ordinary Share proposed NET SALES Natuzzi's fourth-quarter 2004 net sales were EUR 193.6 million or $ 251.5 million, down 7.6 percent from EUR 209.6 million, or $ 249.4 million, reported in the prior year's fourth quarter. During the same period, seats sold decreased 7.8 percent. Annual net sales decreased 2.1 percent over 2003 to EUR 753.4 million, or $ 937.1 million, while seats sold slightly increased by 0.4 percent. In fourth-quarter 2004, net upholstery sales decreased 8.0 percent to EUR 167.9 million or $ 218.1 million as compared to fourth-quarter 2003, while other sales (principally living-room accessories and raw materials) decreased 5.2 percent to EUR 25.7 million, or $ 33.4 million. In the last quarter of 2004, upholstery sales in the Americas were EUR 54.2 million, or $ 70.4, a 31.7 percent decrease over the comparable prior year quarter. During the same period, upholstery sales in Europe increased 10.8 percent to EUR 101.6, or $ 132.0 million. In the Rest of the World upholstery sales increased 6.1 percent over 2003 fourth-quarter to EUR 12.1 million, or $ 15.7 million. In the fourth quarter 2004 total net sales to Divani & Divani by Natuzzi, Natuzzi and Kingdom of Leather stores increased 38.2 percent at EUR 40.9 million, or $ 53.1 million. During the same quarter, 7 new stores were opened: one in Portugal, UK, Denmark, and United States, and three in China, while one store was closed in Italy and another one in Spain. Therefore, the total number of stores at the end of 2004 was 138 in Italy and 129 outside Italy. In 2004 we opened 176 new galleries, bringing the total number of galleries to 525. Fourth-quarter 2004 leather-upholstered furniture sales were EUR 138.5 million, or $ 179.9 million, 7.4 percent down with respect to last year's comparable quarter, while during the same period fabric- upholstered sales decreased 10.9 percent to EUR 29.4 million, or $ 38.2 million. Fourth-quarter 2004 net sales of Natuzzi-branded furniture, that accounted for 73.4% of total upholstery net sales, were EUR 123.2 million, or $ 160.0 million, down 13.7 percent as compared to prior year's fourth quarter. During the same period, net sales of Italsofa furniture were EUR 44.7 million, or $ 58.1 million, up 12.3 percent from EUR 39.8 million, or $ 47.4 million, reported in the previous year quarter. Pasquale Natuzzi, Chairman and Chief Executive Officer, commented: "Unfavorable currency conditions and the persistent pricing pressure affecting the US market in particular, generated a decrease in furniture demand for our Company, which turned into lower orders and sales during the entire fourth quarter". GROSS PROFIT & OPERATING INCOME Gross profit in fourth-quarter 2004 was EUR 64.6 million, or $ 83.9 million, down 10.5 percent on a quarter-over-quarter basis. Over the same period, gross profit margin decreased to 33.4 percent from 34.4 percent. Fourth-quarter 2004 operating income was EUR 2.8 million, or $ 3.6 million, versus EUR 10.4 million, or $ 12.4 million, reported in fourth quarter 2003. The operating margin for each year's comparable quarter was 1.4 percent and 5.0 percent, respectively. FOREX, EXTRAORDINARY ITEMS & TAXES In fourth quarter 2004, Natuzzi S.p.A. reported a net foreign exchange loss of EUR 0.5 million, or $ 0.6 million, versus a loss of EUR 1.4 million, or $ 1.7 million, reported in the fourth quarter of 2003 and extraordinary losses for EUR 5.2 million, or $ 6.8 million. During the same period, income taxes were EUR 6.1 million, or $ 7.9 million, against a tax credit of EUR 0.5 million, or $ 0.6 million, registered in prior year's last quarter. In 2004, income taxes were EUR 17.6 million, or $ 21.9 million, versus EUR 8.5 million, or $ 9.6 million, reported in 2003. NET INCOME & EARNINGS PER SHARE In the fourth quarter 2004, the Company reported net losses of EUR 9.3 million, or $ 12.1 million, versus net earnings of EUR 3.6 million, or $ 4.3 million, registered in the same quarter of the previous year. Net loss per ADR was EUR 0.17, or $ 0.22. For the twelve-months ended on December 31, 2004, net income decreased 50.7 percent to EUR 18.4 million, or $ 22.9 million, from EUR 37.3 million, or $ 42.2 million. Consequently, 2004 earnings per share were EUR 0.34, or $ 0.42, down from EUR 0.68, or $ 0.77, reported in 2003. Pasquale Natuzzi said, "During the fourth quarter 2004 the Company continued to invest in the Natuzzi brand strategy through the opening of new stores, galleries and advertising. In the same period, we reported the aforesaid unsatisfactory sales performance in the US market that together with the further appreciation of the Euro against the US Dollar, extraordinary losses and higher corporate taxes generated the quarterly net loss." CASH FLOW Net cash flow from operating activities for the full year 2004 almost doubled to EUR 75.3 million, or $ 93.7 million, from EUR 39.1 million, or $ 44.2 million, generated in 2003. On a per ADR basis, net operating cash flow was EUR 1.38, or $ 1.72. OUTLOOK Concluded Mr. Natuzzi: "In consideration of the positive reception accorded by our clients to the new collections introduced at the recent trade exhibitions and the further expansion and improvement of the sales performance of our stores and galleries, we expect to reverse in the second half of the year the decrease of sales which is likely to be reported in the first half of 2005, due to the negative order flow over the last few months. As a result, we should increase seats sold by about 5 percent on an annual basis. The net profit margin is expected to be in the region of 3 percent for the full year because of the persistent price pressure from products manufactured in the Far East and Eastern Europe, depreciation of the US Dollar against the Euro, and higher selling costs." ANNUAL DIVIDEND The Directors will propose an annual dividend of EUR 0.07 per ADR at the General Shareholders' Meeting to be held on April 30, 2005 (on first call) and if necessary on May 1, 2005 (on second call). CONVERSION RATES The fourth-quarter 2004 and 2003 dollar figures presented in this announcement were converted at an average noon buying rate of $ 1.2991 per EUR and $ 1.1900 per EUR, respectively. The 2004 and 2003 full-year figures were converted at an average noon buying rate of $ 1.2438 per EUR and $ 1.1316 per EUR, respectively. ABOUT NATUZZI S.P.A. Founded in 1959 by Pasquale Natuzzi, Natuzzi S.p.A. designs and manufactures a broad collection of leather-upholstered residential furniture. Italy's largest furniture manufacturer, Natuzzi is the global leader in the leather segment, exporting its innovative, high-quality sofas and armchairs to 135 markets on 5 continents. Cutting-edge design, superior Italian craftsmanship, and advanced, vertically-integrated manufacturing operations underpin the Company's market leadership. Since 1990, Natuzzi has sold its furnishings in Italy through the popular Divani & Divani by Natuzzi chain of 138 stores, which it licenses to qualified furniture dealers. Outside Italy, the Company sells to various furniture retailers, as well as through 126 licensed Divani & Divani by Natuzzi and Natuzzi stores and 7 Kingdom of Leather stores. Natuzzi S.p.A. was listed on the New York Stock Exchange on May 13, 1993. The Company is ISO 9001 and 14001 certified.